The opinion of the court was delivered by: DEBEVOISE
DEBEVOISE, District Judge
II Summary of the Evidence
B. the Granada-DWG Transfers
C. The Away to travel South Transfer
D. The UNUM Annuity Contract
A. Sufficiency of the Evidence
B. Money Laundering Counts
C. Brady, Giglio, Jencks Material
1. Interview of Witnesses
3. UNUM Contract Witnesses
4. Gerardi, Marqueen and Derrick Loans
5. Other Brady, Giglio, Jencks Contentions
D. Miscellaneous Contentions
2. Attorney/Client Privilege
5. Statute of Limitations
6. Prosecutorial Misconduct
7. Refusal to Grant Continuance
In November 1996 a jury found defendant, Leonard Pelullo, guilty on one count charging him with conspiracy to embezzle $ 4.176 million from two employee pension benefit plans and to engage in money laundering, on 11 counts of embezzlement from these employee pension benefit plans, and on 42 counts of money laundering. Defendant has moved for a judgment of acquittal or a new trial on the following grounds:
1. The Government violated its obligations under Brady, Giglio, and Jencks, by, among other things, not producing (and/or destroying) notes, reports and 302s of interviews with witnesses, and not producing all of the relevant files of the defendant seized in the search of his warehouse.
2. The Government knowingly presented perjured and/or false testimony, and failed to correct that false testimony.
3. The Government improperly presented hearsay testimony in the guise of co-conspirator statements which were never connected to the conspiracy.
4. The specific transactions charged as money laundering neither promoted the embezzlement, nor were designed to conceal or disclose in violation of 18 U.S.C. § 1956(a)(1).
5. The indictment was brought after the statute of limitations had expired.
6. The court failed to grant the defense's request for a continuance, and thus did not provide the defense with adequate time to prepare which resulted in ineffective assistance of counsel.
7. The government violated the defendant's attorney-client privilege.
8. The government improperly inserted the civil standard under ERISA through the testimony, closing arguments and jury instructions, as the basis for finding the defendant guilty of a crime.
10. The amount of the forfeiture is in error.
11. There was insufficient evidence to prove a violation of 18 U.S.C. § 664 (embezzlement).
12. There was insufficient evidence to prove a violation of 18 U.S.C. § 371 (conspiracy).
On December 9, 1994 a grand jury sitting in Newark, New Jersey, returned a 54 count indictment against defendants Leonard Pelullo and Raul Corona.
Count 1 charged a two-part conspiracy. First, defendants and others were accused of conspiracy to embezzle approximately $ 4,176,000 belonging to the Compton Press Employees' Profit Sharing Retirement Plan (the "Retirement Plan") and belonging to the Compton Press Employees' Thrift Plan (the "Thrift Plan") contrary to 18 U.S.C. § 664. (The two Plans will be referred to collectively as the "Employees Benefit Plans"). Second, defendants and others were accused of conspiring to commit money laundering offenses, namely, to conduct financial transactions that involved the proceeds of unlawful activity (the thefts from the Employees Benefit Plans) with the intent to promote the unlawful activity and knowing that the financial transactions were designed to conceal the nature and ownership of the proceeds of the unlawful activity contrary to 18 U.S.C. § 1956(a)(1).
Counts 2 through 12 each charged that the defendants embezzled an amount of money or assets of one or the other or both of the two Employees Benefit Plans. Counts 13-54 each charged that the defendants engaged in a specific transaction which constituted an act of money laundering.
Prior to trial the charges against Corona were dismissed for the reason that the government used information immunized during proceedings in the Middle District of Florida to obtain the indictment against him in the District of New Jersey. United States v. Pelullo, 917 F. Supp. 1065 (D.N.J. 1995).
Pertinent to the pending motions are two other pretrial proceedings in the cases and the information developed during those proceedings. The first of these proceedings was Pelullo's motion to dismiss the indictment for the reason that the government seized and made use of documents protected by the attorney-client privilege. The second of these proceedings was an extended Fed.R.Evid. 104 in limine evidentiary hearing to establish the authenticity of the vast array of documents upon which the government intended to rely to establish its case. Information developed in connection with the privilege motion and in connection with the in limine hearing bear upon the merits of Pelullo's pending motion.
The privilege motion required an inquiry into some of the many governmental investigations of Pelullo, some of the civil proceedings in which Pelullo was involved, and the existence and disposition of documents assembled in or created by those investigations and proceedings.
In 1991 a Florida state grand jury was investigating Pelullo. At the same time a federal grand jury was sitting in the Middle District of Florida. It was investigating allegations of bankruptcy fraud and related offenses by Pelullo and others involving the Ryder/PIE concerns. During the course of that investigation a warrant was issued authorizing the search of a 2,400 square foot warehouse located at 6985 N.W. 82nd Avenue, Miami, Florida. The warehouse contained the records of 25 Pelullo companies, including Compton Press, Inc. and other companies which figure in the embezzlements charged in the present case. The FBI seized from the warehouse 904 boxes of documents, 114 file cabinets containing documents and 10 file cabinet drawers of corporate and financial records.
In his Florida grand jury testimony, Corona described the manner in which Pelullo conducted his many businesses. He created companies, affiliated companies and subsidiaries by the dozens. He transferred employees back and forth among them. He funnelled money through and between these companies. As Corona described it:
The other thing is that the way he controlled his companies was like if they're all his -- they're all his companies and all the money funnels down into one pool, and wherever he needs it, he sends it, irregardless to what, whose money. Which other company it belongs to or what their responsibilities are tomorrow. It's he needs it today here, this resolves the problem for today, and we'll worry about tomorrow tomorrow. We made it through today. And every day is just making it through that one day.
He did think about the relationship of the other companies in how he passed the money through to wherever he needed it. He would funnel it through the company that was the parent of the company he was sending it to from the company that was under But it never -- other than that, it never held him back on where he would put the money, as to -- it was a matter of strictly where he needed it, where his priorities were the day -- the day that you were in front of him.
Grand Jury Transcript at 16.
Notwithstanding the manner in which Pelullo dispatched money here and there, he maintained accurate record of the flow, generating vast amounts of accounting records. Twenty-five of his companies were listed in the search warrant for the Miami warehouse.
All these records were stored in the Miami warehouse. As Pelullo testified before Judge Kelly in the Eastern District of Pennsylvania, "'Every document that I had generated in the last 20 years was in that warehouse." They were in a disorganized state and often mislabeled. Interspersed among the financial and corporate records were the boxes which Pelullo claims contained privileged material. For the reasons set forth in my October 18, 1995 opinion, I rejected this claim and denied Pelullo's motion to dismiss the indictment.
Pelullo has been the subject of criminal proceedings in the Eastern District of Pennsylvania for a number of years.
On July 3, 1991 a jury convicted Pelullo of 49 counts of wire fraud and one count of racketeering for engineering schemes whereby Pelullo utilized the Royale Group, Ltd., and its affiliates to defraud American Savings & Loan and Royale's shareholders. On May 12, 1992, the Court of Appeals affirmed the conviction of wire fraud on Count 54, reversed the conviction on all other counts and remanded the case for retrial. United States v. Pelullo, 964 F.2d 193 (3d Cir. 1992). Since then the case has been retried three times and twice more went to the Court of Appeals, all as described in United States v. Pelullo, 105 F.3d 117 (3d Cir. 1997).
In September, 1989, Harry J. Gerardi and Coolidge I. Marqueen, two of the trustees of the Compton Press, Inc. Employees Benefit Plans, seeking to protect the assets of the plans, instituted a civil action in the United States District Court in this district, Gerardi v. Pelullo, Civil Action No. 89-4069. Named as defendants were Pelullo and Corona along with other individuals and corporate entities. The complaint alleged that Pelullo and the other trustees in league with him had breached their duties to the plans and dissipated fund assets. In particular, the plaintiffs challenged the three transactions which are the subject of the present indictment: (i) the $ 1.150 million loan to Granada Investment, Inc., (ii) the $ 1,326 million loan to Away to Travel South, Inc., and (iii) the converting of the $ 1.7 million annuity contract with Union Mutual Life Insurance Company ("UNUM").
Subsequently, Daniel F. Dacey and Dorothy S. Patten intervened on behalf of all the employees of Compton Press, Inc. and participants in and beneficiaries of the two plans.
Defendants in the case failed to make certain payments required of them. On July 26, 1990, there was entered an amended stipulation of settlement and consent order agreed to by plaintiffs, defendants and intervenors.
The law firm of Wilentz, Goldman & Spitzer signed the stipulation and order on behalf of defendants David G. Hellhake, David Neifeld, Raul Corona, Moshe Milstein, Alan Weisberger and Compton Press, Inc. Pelullo appeared in the case and signed the stipulation and order "Pro Se."
Documents generated in the Eastern District of Pennsylvania criminal proceedings and in the New Jersey civil proceedings found their way to the Miami warehouse.
As will be developed in the review of the evidence produced at the trial of this case, Pelullo and his associates were engaged in other litigation. Documents and testimony derived from these various legal proceedings are the subject of Pelullo's pending motion.
In addition to Corona's and Pelullo's pretrial motions; described above, at the government's request a hearing pursuant to Rule 104 of the Federal Rules of Evidence was held in order to determine the authenticity of the records and the admissibility of summary charts which, based upon the records, trace the flow of funds from the Employees Benefit Plans to their ultimate destination.
During the New Jersey investigation, subpoenas were served on various banks, brokerage houses, law firms and other persons and entities, and pursuant to those subpoenas a vast number of documents was produced. In addition, documents were obtained from the United States Attorney's Office in the Middle District of Florida. These documents had been seized during the course of the search of the warehouse described above.
At the hearing, the various custodians of the subpoenaed documents identified them and testified about the manner in which they were made and maintained. In addition, Rosario Ruffino testified. He was the Special Agent of the United States Department of Labor, who had primary responsibility for investigating and preparing this case. In his testimony and in a supplemental affidavit he described how the documents had been obtained and how the summary charts had been prepared.
Ultimately, I rejected Pelullo's objections to the documents and ruled that all of them had been properly authenticated and were admissible. I also held that the information in the summary charts was based upon the documents and that the charts were admissible. I reserved to Pelullo the right to compare copies of the documents with the originals and to file objections to any individual document which appeared subject to challenge and to move to redact any information on any summary chart which appeared to be based on something other than an authenticated document. By the time trial commenced the summary charts had been refined, and there was no challenge to the authenticity of the underlying documents or to the accuracy of the manner in which the charts showed the flow of funds.
The superseding indictment charges that Pelullo conspired to and actually did commit three series of embezzlements from the Employees Benefit Plans.
The first series of embezzlements consisted of transferring $ 1.150 million from Kidder Peabody, Merrill Lynch and A.G. Edwards Retirement Plan accounts. A chart (G1OOO) traces the flow of funds out of the three Employees Benefit Plan brokerage accounts either directly or indirectly into a bank account of a Pelullo corporation, Granada Investments, Inc. ($ 750,000) or to another Pelullo corporation, Paribas ($ 400,000). G1000 shows the numerous payments of these funds made from the Granada Investments account.
G1100 shows the delivery of 19,900 shares of DWG Corp. stock held in the Shearson Lehman Thrift Plan account to a Shearson Lehman Compton Press, Inc., corporate account and then to an A.G. Edwards Compton Press, Inc. corporate account. There they were liquidated and the proceeds remitted to the Summit Trust Company Compton Press, Inc. operating account. G1100 shows the many entities to which these funds were disbursed from that account. These transfers were not charged as criminal offenses in the indictment but were part of Pelullo's overall plan to use fund assets to acquire DWG Corp.
The second series of embezzlements charged in the superseding indictment consisted of the transfer of $ 1,326 million from Employees Benefit Plan accounts at A.G. Edwards, Shearson Lehman and Dean Witter to Employees Benefit Plan accounts established at Imperial Bank in Florida. From there the funds were transferred to an Adorno, Zeder, Allen Trust-Escrow Account at the Barrett Bank in Florida. A dizzying array of payments and transfers of funds followed the deposit in the Adorno, Zeder, Allen Trust-Escrow Account, a significant portion of which was designed to facilitate an investment in a bankrupt travel agency, Away to Travel South. The flow of these funds ...